Chinese Private Equity Firms Take Market Share, McKinsey Says

March 24 (Bloomberg) -- Chinese private equity firms are
taking market share from foreign rivals and will be the main
beneficiaries as money inflows from domestic investors surge,
according to McKinsey & Co.

Local managers more than doubled their share of the total
private equity deal value in China to 20 percent last year from
2007, the consulting firm said in a report released today.
McKinsey forecast domestic investors will boost commitments to
buyout firms as much as fivefold by 2015.

Fundraising in China is benefiting from swelling assets of
government agencies such as China Investment Corp., the state
pension fund and the nation’s foreign exchange regulator, said
Bruno Roy, managing partner of McKinsey’s Beijing office.
Chinese insurers, recently approved by the government to make
private equity investments, may allocate 3 percent of their
assets to such funds in five years, he said.

“Over time, we expect Chinese limited partners to become
increasingly present both in China and abroad,” Roy said in an
interview. “For the last two years, their commitments to local
Chinese private equity funds have already exceeded those made by
foreign limited partners. We expect that trend to continue.”

Chinese limited partners -- people or institutions that
invest in private equity funds -- had committed about $40
billion to the industry at the end of 2009, Roy said.

Carlyle Group, KKR & Co. and Blackstone Group LP raised
yuan-denominated funds last year as they seek to step up
investments in China, whose economy overtook Japan’s last year
to become the world’s second-largest.

CIC, Pension Fund

The $300 billion CIC, the nation’s sovereign wealth fund,
will seek more money from the government to expand investments,
Executive Vice President Jesse Wang said Jan. 15. The 856.8
billion yuan ($131 billion) National Social Security Fund, whose
assets grew 10 percent last year,
will expand private equity investments that currently total 12.7
billion yuan, it said on Mar. 16.

With the exceptions of the State Administration of Foreign
Exchange and China Investment Corp., other Chinese investors in
private equity will likely focus on domestic funds in the next
few years, making them the main beneficiaries of capital inflows,
Roy said.

Private equity fundraising in China for the explicit
purpose of investing domestically surged 82 percent last year,
driven by a jump in yuan-denominated funds, according to the
report. That outstripped the 22 percent growth in capital
amassed by all Asia-focused funds by regional and global firms,
McKinsey said.

Yuan-denominated funds accounted for 70 percent of the 83.7
billion yuan raised for China-focused private equity funds last
year, according to the report.

“The macro economics of China remain very compelling”
because of growth and the nation’s appreciating currency, Roy
said. Private equity firms may focus on investing in financial
institutions, infrastructure, agriculture and renewable energy
this year, he said.